2020 SaaS Industry Market Report: Key Global Trends & Growth Forecasts

Last year, 2020, we witnessed many key developments in the SaaS industry. Excitement has been high owing to the introduction of newer technology in SaaS. These include even more powerful AI, machine learning, and the much anticipated 5G experience. Global SaaS trends indicate that in 2021 and beyond, we will witness a great increase in SaaS development and adoption. However, these predictions were made before the current COVID-19 situation, which rendered the figures quite conservative.

As health concerns from the pandemic persist, efforts to revive the economy safely are also ramped up. With expectations that the COVID crisis will remain in the foreseeable future, experts predict that industries and governments will have to continue relying on digital technology to keep the economic wheels turning. In this 2021 SaaS industry market report, Sebastian Lambert will discuss how this and industry forces will impact markets and businesses.

The world is getting more digital. The cloud computing market, in particular, was estimated to reach a $371.4 billion value in 2020 (ReportLinker, 2020). Further on, it is predicted to grow to $832.1 billion by 2025 with a compound annual growth rate (CAGR) of 17.5%.

As a key component of the cloud computing market, the global SaaS market size is estimated to end up at around $272.49 billion in 2021 (The Business Research Company, 2021). With a CAGR of 11.7% in the next four-year period, the projected SaaS market size will be about $307.3 billion by the end of 2026. In 2021, it is estimated that 73% of all organizations will have apps powered by SaaS (99 Firms).

Many factors for its growth, including the pandemic, comes into play.

Firstly, there is a general need and desire for digital transformation. Now, more than ever, companies and government institutions realize the benefits of outsourcing key computing processes to digital platforms.  Secondly, products and services get delivered faster. Machines are simply faster in doing clerical computations. Thirdly, computation processes become more accurate. There are fewer instances of human errors. And, fourth, digital tools allow institutions to save resources like money and man-hours.

In the next section, we will further unpack the details in our 2021 SaaS industry market report within the context of the “new normal” this year and beyond.

Major Areas for SaaS Development and Adoption

Before the COVID pandemic, experts agree that digital transformation and SaaS adoption would continue to record impressive growth all over the world. Somehow, the pandemic showed that accelerated adoption is the way—the only way. It supports the view of the United Nations Development Program (UNDP) report (2020), which opined that new digital technologies can and should play a key role in developing green sustainable economies.

Digital adoption has much room to grow worldwide. In particular, data shows that there are around 3.6 billion people who are still not connected (ITU, 2019). The majority of these people are found in developing countries. Predictably, the number of unconnected populations will likely decrease as technology usage penetration increases.

There are three major areas for the predicted sharp increase in SaaS development, adoption, and general digital transformation:

1. Health
2. Education
3. Economy (income)

These three areas of human development have been tragically hit by the pandemic (UNDP). As the UNDP noted, the world has seen a lot of crises in the past 30 years. These included the 2007 to 2009 recession. Even though these hit humanity hard, development gains have accrued year-on-year. However, COVID-19 stands to drastically change this trend with its three-pronged hit on health, education, and income.

Given this view, tech companies are scrambling to create and assemble the right solutions for these major areas of concern. In the next few sections, we will discuss both pre-COVID and COVID-era drivers for SaaS development and general digital transformation.

Health Drivers for SaaS Market Growth

A 2019 survey indicated that 100% of respondents in the healthcare industry are using SaaS (Hit Consultant, 2019). The majority of the respondents, at 63%, already use six or more SaaS platforms. The top three uses for SaaS are (1) patient portal at 56%, (2) telemedicine at 45%, and (3) mobile communication at 42%. Other uses include ePrescriptions (38%), scheduling (29%), and billing (20%).

Top Pre-COVID Drivers of Healthcare SaaS Adoption

Reducing IT costs. The top reason is users want to reduce IT costs (71%). Automation allows them to reduce expenditure in finances, man-hours, and other resources such as hardware space. By outsourcing legacy IT operations to SaaS programs and vendors, organizations can lighten the in-house workload, especially in the HR and finance departments.

Easier upgrades. Around 62% of users cite that opting to go for SaaS solutions afford them easier upgrades. The option simply lowers upgrade costs and saves valuable time. It’s because upgrades are deployed off-site by SaaS providers. You get new features and functionalities just over the cloud. No programming skills and man-hours are required. To top it off, almost no on-site maintenance or service is needed.

Accessibility. For 59% of users, using SaaS improves accessibility. This goes for both healthcare providers and patients. The use of SaaS expedites the flow of information and of service delivery as well.

Predictable costs. SaaS subscribers in healthcare (about 50%) enjoy the predictable costs of SaaS services. SaaS platforms are offered via regular plans or one-time licenses. Of course, there can be extra charges for upgrades and advanced services. However, stipulations are available in digital contracts and most SaaS providers let you know of charges through pop-ups and check-out dialogues.

Disaster recovery. For 48% of SaaS users, one of the top reasons they choose to subscribe to SaaS platforms is for better disaster recovery. With data stored in the cloud or on secure off-site data centers, they do not have to worry about losing data over hardware malfunctions. You can easily get your data back by just connecting to the internet and logging in on your account. Most SaaS providers have 99.9% uptime.

Top COVID Era Drivers for Healthcare SaaS Development

COVID-19 showed that most healthcare systems are unprepared to contain and manage a massive crisis. Inefficiencies mount in areas of necessities in health crisis management, from asset management to contact tracing. The COVID pandemic marks a defining moment for reimagining healthcare (Philips, 2020). SaaS plays a big role in this.

Point of care technologies

The novel coronavirus hits the respiratory system hard. Severe acute pneumonia is the foremost life-threatening disease associated with the most severe COVID-19 cases. Thus, doctors need to address the diagnosis of the disease quickly. To allow bottleneck in radiology departments could lead to more of the virus spreading. Point-of-care solutions have been eyed to solve this conundrum. At the top of the list are pocketable ultrasound devices.

These devices allow healthcare professionals to untether themselves from cart-based and stationary machines. One app-based mobile ultrasound solution, Lumify, was developed by Philips. This is only one of the many solutions being used to combat the COVID-19 spread (IEEE Spectrum, 2020). Lumify, and others, allow doctors to test patients’ conditions in the ICU or even offsite. Plus, it has collaboration tools such as camera sharing, ultrasound exam sharing, collaborative pointers, and video calls.

With technology like this, diagnosis and healthcare service deliveries will be so much faster. Given its initial success, we predict that more SaaS-based point-of-care solutions will be in development in the near future. Adoption will also increase.

Remote healthcare work

With social distancing being prescribed, radiologists, cardiologists, and oncologists were forced to work at home. This increased the need for home picture archiving and communication system for efficient radiological interpretations. A remote system was designed by the University of Alabama to address this need. Their system required both hardware and software investments. Hardware requirements included computer towers and the usual necessary devices like high-end display monitors and keyboards (American Journal of Roentgenology, 2020). Software investments include voice recognition software and remote support software, like TeamViewer, among others.

This system can be replicated and improved upon by other radiology departments. More importantly, the system and workflow design can be translated into other healthcare uses. These include patient engagement, the digital exchange of COVID-19 patient data, and many more. Additionally, AI for tracking patient conditions and progress will likely be put to use to ensure faster and more efficient remote healthcare work.

Aside from managing the spread of COVID-19, one issue that the healthcare industry needs to grapple with is the prevalence of healthcare issues as a result of the pandemic. In 2021, there has been an increase in digital mental health solutions, with approximately 76% of clinicians treating patients exclusively via telemedicine (TechCrunch, 2021). With more investors pouring funding into digital health, experts predict strong growth in this sector in 2021 (TechCrunch, 2021).

Nested command centers

Coordination is key when facing dynamic changes in any socio-economic environment. This rings true for all institutions, from for-profit businesses to public healthcare organizations. There are many aspects involved, including the management of finances and assets. It is also vital for data collection and big data analytics. Having centralized management, communications, and intelligence systems will not only help make policy-making and response more proactive. It will also make responses more timely and appropriate.

It is hard to imagine that creating these command centers will not include SaaS services. SaaS platforms, alongside other cloud computing technological offerings, can make coordination both more agile and reliable.

Additionally, as mentioned, healthcare institutions will be using a mix of digital tools to achieve this. These include communication tools, storage programs,  analytics solutions, and workflow automation systems along with many other kinds of software. And as institutions need to coordinate with other institutions, and likely with overseeing bodies, their software stacks in these command centers will need to be interoperable. Thus, seamless integrations of disparate systems will likely be required of SaaS solutions to power these nested coordinating bodies.

This development is not just for the foreseeable COVID response efforts, but also for future uses in both normal and extraordinary times.

Education Drivers for SaaS Market Growth

For many around the world, COVID-19 seemingly placed their education on a standstill. This is especially true for populations that have yet to be connected to the internet. However, for those with access to web and SaaS platforms, education can still continue. It may not be in its traditional mode, but it can still continue nonetheless. Educational needs in the midst of the raging pandemic require a serious rethinking of how education is viewed and facilitated.

Even before COVID-19 hit, however, SaaS has gained popularity in the education industry (Almajalid, 2017).

Top Pre-COVID Drivers for Education SaaS Adoption

Cost reduction. With cloud computing solutions like SaaS, institutions are able to cut down on both hardware and software requirements. SaaS solutions carry high processing power for various operations. More importantly, the computing processes are carried out by the provider’s hardware. All subscribers need to do is access this power through the internet.

Accessibility and personalization. SaaS solutions are usually flexible enough to cater to the needs of different institutions and individuals. Interfaces and features can be customized according to their particular requirements. These include branding aspects and workflow automation. Moreover, many SaaS solutions offer ways to personalize the experience. This means students and educators alike can shape platforms to help them best with their specific needs.

Interactive learning. Digital platforms provide users with interactive learning options. These include live discussions, quizzes, forums, chatrooms, and interactive slide presentations. This is perfect for distance and self-paced education approaches. Adopting online educational platforms also allow for mobile learning. Moreover, SaaS tools for online education are also patterned and design to mimic the intuitive user interfaces of popular social media. Thus, learning will not be hampered by poor usability. The social dimension even makes it more enjoyable.

Management efficiency. Using digital tools allow institutions faster and efficient communications, data storage, and analytics. Event scheduling and performance tracking tools are also available in many SaaS platforms. This enables organizational users to manage their entire network of processes using a single interface or, at the least, seamlessly integrated collection of apps. Subscribing to SaaS solutions eliminates the perils of losing paperwork and hardware issues. It also accelerates work through automating critical and clerical workloads.

Top COVID Era Drivers for Education SaaS Adoption

Distance learning

Before, distance learning was just an option. When the pandemic hit, it was almost the only option for teachers and students. And, this need can only be satisfied via subscribing to cloud-based tools such as SaaS. As social distancing is deemed to be an effective way to stave off the spread of the virus, institutions have started implementing different types of teaching-learning approaches. Live, online classes, pre-produced video lectures, and interactive quizzes have become the norm. As the race for the vaccine goes on, it is easily imaginable that distance learning activities will continue in the foreseeable future.

Building back more resilient education

With the pandemic affecting more than 1.6 billion learners worldwide, school closures have impacted 94% of the world’s student population (United Nations, 2020). The crisis is not only affecting the delivery of education. It also exacerbates pre-existing disparities in educational opportunities. It laid bare the existing complications and insufficiencies of educational infrastructures, teaching frameworks, and learning approaches.

Thus, for UNESCO, the pandemic highlights a chance to build back a better and more resilient education even after we recover from the pandemic. This includes the rethinking of what education is, what it is for, how it is done, and how it can be a tool for sustainable development. It should be brought back with resiliency for future crises in mind.

Connectivity inclusion in the right to education

In a recent policy brief, the UN proposes that the right to education includes connectivity (UN, 2020). Thus, barriers to connectivity need to be removed. Furthermore, it involves the strengthening of data use, storage, and education monitoring across levels. Digital literacy also needs to be improved worldwide as this would enable flexibility in education efforts as well as corporate training.

Economic Drivers for SaaS Market Growth

The travel and, more so, tourism industries were hit badly by the COVID-19 crisis. As of April 20, 2020, 100% of worldwide destinations introduced travel restrictions to counter the pandemic (UN World Tourism Organization, 2020). In the first quarter of 2020, the world economy witnessed an $80 billion loss in exports too. The network of closures and restriction efforts present an unprecedented slow-down of markets and, therefore, income for a lot of people. In this dark light, the SaaS industry is expected to provide meaningful and more crisis-ready solutions than offerings available in the pre-COVID era.

Top Pre-COVID Drivers for Business and Government SaaS Adoption

The world is getting flatter. In the words of the author, Thomas Friedman, the world is getting flat in terms of opportunities in the global market. Economic cooperation in all levels—from government policies to economic exchanges between individual citizens in different geographies—is powered by digital technologies.

The application of technologies allows organizations to reduce transaction costs, governance costs, and to be more effective in the coordination of complex value chains. Technology adoption also creates new job roles and thus new job opportunities for new skill requirements across industries.

 Megatrends in policy and economic governance include more interventionism in national policies, protectionism in trade and investment, and more economic cooperation (UNCTAD, 2020). Competition has never been fiercer and more equal in the global market. This is thanks to digital technologies brought about by the new industrial revolution or Industry 4.0.

The ongoing revolution has several megatrends. It involves the use of advanced AI and robotics, additive manufacturing (3D printing), and the digitalization of the supply chain. The key element within this megatrend is the proliferation of the use of SaaS platforms, IoT, blockchain, automation, and AI-enabled systems (“white collar” robots). Digital technology has been the engine of this revolution. Businesses and governments have been in a hurry to get their hands on them.

Top COVID-Era Drivers for Business and Government SaaS Adoption

Remote work

In the pre-COVID era, collaboration programs proved to be useful in keeping organizations efficient. They also help make for happy workers when they are deployed to support remote work options. According to remote work and telecommuting statistics, 24% of employees allowed to work remotely at least once per month are more likely to report that they feel happier and more productive at their jobs.

With social distancing efforts expected to slow down the spread of the virus, remote work setups are expected to be more common—across all industries. As mentioned, healthcare institutions are already transitioning to accommodate more flexible work setups. Industries from manufacturing to finance are following suit, undergoing transitions supportive of social distancing protocols. This is not only imperative to keep the flow of goods and services, but also to provide income for as many people as possible in a time of crisis.

We predict that this will not end after the COVID era. The lessons gleaned from these work arrangements will guide future crises-proofing.

Cashless transactions

In North America, 2019 recorded about $179.4 billion in non-cash transactions. This is expected to reach $198.3 billion in 2023—exclusive of the COVID pandemic (Capgemini, 2019). Given that cashless transactions can reduce the spread of the virus, expect to see more companies and governments pushing this type of payment option during and after the COVID pandemic.

To achieve this, SaaS offerings like payment gateways, progressive fintech solutions, and other financial tools will be more common across industries and government institutions. Immediate adoption and retention are predicted to increase even after the COVID pandemic.

Big Data and Machine Learning

Health and policy-related information are highly valued today. Tellingly, getting them on demand is no longer a privilege but a necessity. SaaS solutions and subscription offerings provide both government and individual users this ability. And in order for information to be accurate and relevant, data needs to be processed in real-time. Thus, big data capabilities are needed.

Moreover, big data needs to be analyzed not just handled. To this end, automated handling and analysis can save organizations time. Expediting these processes allows them not only to respond better and faster but also to save on man-hours and other costs.

With big data tech and powerful machine learning in the public sector, tracking COVID-related concerns can be made easier and more accurate. For the private sector, big data and machine learning can help business organizations target audiences better. These technologies will give them the tools for faster reporting, more accurate predictions, and key insights for better actions. In unpredictable times, these tools can bring some sense of stability.

Technologies to Watch Out for in the SaaS Industry

As the SaaS industry continues to evolve, the influx of new technologies is bound to shake up the SaaS market size and landscape further. In this section, we will discuss some that already have made an impact and are predicted to further disrupt the SaaS industry as we know it.

Complementary: PWAs and Native Apps

Apps have been the rage since they were first introduced—from early PDAs to the first apps in the Apple App Store in July 2008 (The Guardian, 2015). Today, however, apps are getting a new competition with PWAs or progressive web applications. PWAs, unlike legacy apps, do not need installation to work. As its name suggests, this type of application can be accessed via the web. And they act like legacy apps in well-updated browsers.

First coined in 2015 by Google Chrome engineer Alex Russel and designer Francis Berriman, PWAs not only function like legacy apps but also work offline and send push notifications without requiring you to install it from app vendor platforms. Examples include the consumer-facing interface of Netflix, Twitter, Facebook, and Pinterest.

PWAs require less storage space and processing power. The average size of an IOS app is about 38MB while Android apps are 60% less at 15MB.  Progressive web apps are much smaller, with some coming in at less than 1 megabyte. This allows them to load much faster. For instance, Starbucks’ PWA is 99.84% smaller than its app counterpart. Making this available removes the barrier for non-app users to order online. Tellingly, total desktop orders just about equal mobile orders.

However, PWAs have their own disadvantages. These include greater use of battery and some limitations like more flexible personalization. They also do not have access to mobile device features like contacts, camera controls, and proximity sensors. These, though, are not a hindrance to their usage. In fact, they can complement native applications, especially when they are integrated. Hence, we expect more companies to make use of PWAs in concert with native apps.

Blurring the Lines: Vertical and Horizontal Apps

The market is filled with horizontal applications that can work together seamlessly. An example would be Google Drive and Dropbox. You can extend your Drive storage space by integrating it with your Dropbox account. You can move files between them and even edit media with other integrated programs. These horizontal integrations make it possible for users to keep using stacks of multiple apps without migrating to one big suite. This is all made possible with application programming interfaces or APIs.

APIs, in a nutshell, allows multiple software products to talk to each other (Medium, 2020). For example, it takes an API to let you schedule an appointment on your client’s Google Calendar through your CRM PWA tool. The API allows these programs to talk back and forth. They extend the capabilities and make software stacks interoperable. Horizontal applications are ideal for generic use.

Vertical apps, on the other hand,  are designed to work for a specific use, organization, or user. It is usually customizable to be used for a specific enterprise need. For instance, ERP platforms are tailor-made for particular organization users for their particular needs. No ERP solution for two different companies will look alike. The same goes for point-of-sale (POS) platforms.

Horizontal applications are generic and customizable enough to be used by smaller businesses, while vertical applications are designed to target specific enterprises.

However, customizability is highly-priced in the SaaS market. Based on the data in this 2020 SaaS industry market report, we predict that there will be an even larger gray area when it comes to both vertical and horizontal application use. One-size-fits-all solutions will evolve into programs that allow for higher levels of customization that will blur the lines between vertical and horizontal software.

Blockchain and Security

Security concerns have been increasing since the digitization push of Industry 4.0. Many technologies have been deployed such as single sign-on (SSO) technology and other verification tools. However, one promising tech is predicted to make security even better—blockchain.

Once used mainly for cryptocurrency, blockchain technology uses a sequence of records or blocks that are linked using high-tech cryptography. This enables digital assets to carry their own edit and transaction histories no matter who “owns” them at the moment. The technology allows for openness, decentralization, as well as accountability. With every action saved in every asset, entities can now be privy of what changes were made and by whom.

Furthermore, as assets themselves can record edits and transactions, it can speed up processes like back-office settlements in the financial industry (Fintech Futures, 2016). Other uses for blockchain include tracking assets in energy trading, the food supply chain, jewelry, music, and many more. This opens up new possibilities in cloud security. Expect blockchain technologies to make their way to popular solutions in the SaaS industry in the coming years.

Machine Learning and Explainable AI (XAI)

Machine learning is gaining quite a reputation. Seen as the ultimate outsourcing of human intelligence to machines, the technology is now employed to create more powerful AI progenies for both specific and general use. With machine learning, users will be able to outsource different kinds of business analysis traditionally done by humans.

For instance, machines can now identify correlations and develop actionable insights from data. All users have to do is train the machine to get specific results in a sample or live data environment. Of course, this is easier said than done as it requires special skills and aptitude. For this high-level tech, new job roles will be needed in business for data scientists and engineers. The influx of new jobs will be another trend to watch out for in the wake of the rise of machine learning.

Moreover, there is a movement in machine learning deployment called Explainable AI (XAI). This type of AI (and machine learning deployment) provides users with a look at what’s going on inside its “black box.” It provides users with information about how it reaches a certain decision. This is important for users that value transparency and accountability. In the coming years, XAI will see more prominence in the SaaS industry.

SaaS Industry Predictions for 2021 and Beyond

The year 2020 has been eventful for many businesses while being tragic for some. With higher demand for connectivity, faster computation, and personalization, the year 2020 presented SaaS with new problems and new ways to solve them. For well-placed industries, the situation meant new avenues for growth.

In April 2020, a survey found that people expect COVID-19 to impact general IT spending. The top spending areas include cybersecurity (84%), followed by investments in hybrid or multi-cloud (74%) and automation (66%).  Areas that top the expected decrease in spending are blockchain technology (24%), AR/VR (22%), and IoT (16%).

Individual and organizational spending among non-tech-centered B2B and B2C companies, however, does not really dictate where cloud computing services in general and the SaaS industry, in particular, will go. In the next subsections, we will discuss close to inevitable developments that we will likely see by the end of this year or in the next.

The Powerful 5G Network

The world largely anticipates the deployment of the 5G network. Conspiracy theories aside, this new technology is touted to speed up data, make interfaces more responsive, and allow for more devices to be connected. Today, however, most deployments do not have a standalone configuration. They remain tethered to 4G networks—which means they would have to rely on 4G networks to access 5G speeds.

Current 5G devices in the US need to make initial connections to 4G first before switching to 5G when it is available. When networks evolve into standalone mode, we can expect more coverage and yes, more speed. However, the time to get it to more areas may be impeded by the current pandemic. Hopefully, though, with the White House planning to speed up the rollout, we might see more coverage by December 2021 (Wired, 2020).

With the 5G network deployed, more technology will become more popular and democratic. These include self-driving cars, smarter medical equipment, and many more. Of course, cloud computing and SaaS will serve as the nerve center in controlling these technologies. Given these, expect new features, capabilities, and even new offerings when the 5G network finally rolls along.

Edge Computing

Edge computing is a distributed computing framework that provides data storage and computation closer to locations where they are needed. This is to save bandwidth and improve response times. Today, only around 10% of enterprise data is processed using edge computing (IBM). By 2025, experts predict that 75% will be processed at the edge.

In 2018, the edge computing market was valued at less than $1 billion in North America. By 2024, the global edge computing market is expected to reach a value of $250.6 billion (Tech HQ, 2021). With a valuation of just more than half a billion dollars in 2018 for Europe, it is predicted to reach a value of $2.5 billion in the region.

Paired with 5G, edge computing will bring more power and savings to enterprises. It will definitely affect how IoT devices work and how IoT technology is being used. Big data analytics in all sorts of industries, including public administration will be transformed. Better real-time insights will be generated. For institutions, this means acquiring the capability to provide faster responses to their communities.

Building a More Resilient World

COVID-19 showed that the SaaS industry within the cloud computing services sphere is close to the core of rebuilding a better world after the pandemic. Digital transformation is not just an empty want. It is a pressing need. As we face current and future threats together, we need to be more connected in making ourselves more resilient.

Businesses need to be more competitive in innovating ways to make goods and services that are relevant and accessible to their target users. This is not just in the sense of generating revenues and profit. It is in the genuine sense of contributing to making lives easier, enjoyable, and more sustainable across the globe.

If we have not realized the bigger picture of what roles could SaaS and cloud computing, in general, play in making the world a better place, the COVID pandemic certainly showed a few good reasons for how they can. As the world relentlessly moves forward and the SaaS industry evolves, these reasons, hopefully, will become core components of the industry’s DNA.

By Sebastian Lambert

CEO of FinancesOnline and our company’s guru on SaaS growth hacking and lead generation strategies.